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Supreme Court of India
RAMANA DAYARAM SHETTY v. THE INTERNATIONAL AIRPORT AUTHORITY
OF INDIA AND ORS. 1979 AIR 1628, 1979 SCR (3)1014, 1979 SCC (3) 489
BENCH: BHAGWATI, P.N., TULZAPURKAR, V.D., PATHAK, R.S.
[F.S. Nariman, R. H. Dhebar, S. K. Dholakia, H H. Yagnik and . V. Desai for Respondent No. 4.]
The Judgment of the Court was delivered by
BHAGWATI, J.-This appeal by special leave raises interesting questions of law in the area of
public law. What are the constitutional obligations on the State when it takes action in exercise
of its statutory or executive power? Is the State entitled to deal with its property in and manner it
likes or award a contract to any person it chooses without any constitutional limitations upon it?
What are the parameters of its statutory or executive power in the matter of awarding a contract
or dealing with its property? The questions fell in the sphere of both administrative law and
constitutional law and they assume special significance in a modern welfare State which is com
mitted to egalitarian values and dedicated to the rule or law. But these questions cannot be
decided in the abstract. They can be determined only against the back-ground of facts and hence
we shall proceed to State the facts giving rise to the appeal.
On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class
restaurant and two Snack bars at the International Airport Bombay was issued by the 1st
respondent Which is a corporate body constituted under the International Airport Authority Act,
43 of 1971. The notice stated in the clearest terms in paragraph (1) that "Sealed tenders in the
prescribed form are here by invited from Registered IInd Class Hoteliers having at least 5 years'
experience for putting up and running a IInd Class Restaurant and two Snack bars at this Airport
for a period of 3 years". The latest point of time upto which the tenders could be submitted to the
1st respodent was stipulated in Paragraph 7 of the notice to be 12 p.m. On 25th January, 1977
and it was provided that the tenders would be opened on the same date at 12.30 hours. Paragraph
(8) of the notice made it clear that "the acceptance of the tender will rest with the Airport
Director who does not bind himself to accept any tender and reserves to himself the right to
reject all or ally of the tenders received without assigning any reasons therefore " There were six
tenders received by the 1st respondent in response to the notice and one of them was from the 4th
respondents of offering a licence fee of Rs. 6666.66 per month, and the others were from Cafe
Mahim, Central Catering Service, one A. S. Irani, Cafe Seaside and Care Excelsior offering
progressively decreasing licence fee very much lower than that offered by the 4th respondents.
The tenders were opened in the office of the Airport Director at 12.30 p.m. On 25th January,
1977 and at that time the 4th respondents were represented by their sole proprietor Kumaria. A.
S. Irani was present on behalf of himself, Cafe Mahim, Cafe Seaside and Cafe Excelsior and
there was one representative of Central Catering Service. The tenders of Cafe Mahim, Central
Catering Service, Cafe Seaside and Cafe Excelsior were not complete since they were not
accompanied by the respective income tax certificates, affidavits of immovable property and
solvency certificates, as required by cl. (9) of the terms and conditions of the tender form. The
tenders of A. S. Irani was also not complete as it was not accompanied by an affidavit of

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immovable property held by him and solvency certificates. The only tender which was complete
and fully complied with the terms and conditions of the tender form was that of the 4th
respondents and the offer contained in that tender was also the highest amongst all the tenders.
Now it is necessary to point out at this stage that while submitting their tender the 4th
respondents had pointed out in their letter dated 24th January, 1977 addressed to the Airport
Director that they had 10 years' experience in catering to reputed commercial houses, training
centres, banks and factories and that they were also doing considerable outdoor catering work for
various institutions. This letter showed that the 4th respondents had experience only of running
canteens and not restaurants and it appeared that they did not satisfy the description of
"registered IInd Class Hotelier having at least 5 years' experience" as set out in paragraph (1) of
the notice inviting tenders. The Airport officer, therefore, by his letter dated 15th February, 1977
requested the 4th respondents to inform by return of post whether they were a "registered IInd
Class Hotelier having at least 5 years experience" and to produce documentary evidence in this
respect within 7 days. The 4th respondents pointed out to the Airport officer by their letter dated
22nd February, 1977 that they had, in addition to what was set out in their earlier letter dated
24th January, 1977, experience of running canteens for Phillips India Ltd. and Indian oil
Corporation and moreover, they held Eating House Licence granted by the Bombay Municipal
Corporation since 1973 and had thus experience of 10 years in the catering line. It appears that
before this letter of the 4th respondents could reach Airport officer, another letter dated 22nd
February, 1977 was addressed by the Airport officer once again requesting the 4th respondents to
produce documentary evidence to show if they were ''a registered Ilnd Class Hotelier having at
least 5 years experience". The 4th respondents thereupon addressed another letter dated 26th
February, 1977 to the Director pointing out that they had considerable experience of catering for
various reputed commercial houses, clubs, messes and banks and They also held an Eating
House Catering Establishment (Canteen) Licence as also a licence issued under the Prevention of
Food Adulteration Act. The 4th respondents stated that their sole proprietor Kumaria had started
his career in catering line in the year 1962 at Hotel Janpath, Delhi and gradually risen to his
present position and that he had accordingly "experience equivalent to that of a IInd Class or
even 1st Class hotelier." This position was reiterated by the 4th respondents in a further letter
dated 3rd March, 1977 addressed to the Director. This information given by the 4th respondents
appeared to satisfy the 1st respondent and by a letter dated 19th April, 1977 the 1st respondent
accepted the tender of the 4th respondents on the terms and conditions set out in that letter. The
4th respondents accepted these terms and conditions by their letter dated 23rd April, 1977 and
deposited with the 1st respondent by was of security a sum of Rs. 39,999.96 in the form of fixed
Deposit Receipts in favour of the Ist respondent and paid to the 1st respondent a sum of Rs.
6666.66 representing licence fee for one month and other amounts representing water, electricity
and conservancy charges. The 4th respondents thereafter executed and handed over to the Ist
respondent an agreement in the form attached to the tender on 1st May, 1977. The 4th
respondents also got prepared furniture, counters and showcases as also uniforms for the staff,
purchased inter alia deep freezers, water coolers, electrical appliances, icecream cabinets,
espresso coffee machines, crockery, cutlery and other articles and things and also engaged the
necessary staff for the purpose of running the restaurant and the two Snack bars But the Ist
respondent could not hand over possession of the requisite sites to the 4th respondents, since A.
S. Irani was running his restaurant and snack bars on these sites under a previous contract with
the 1 st respondent and though that contract had come to an end, A. S. Irani did not deliver
possession of these sites to the Ist respondent. The 4th respondents repeatedly requested the 1st

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respondent and the Airport Director who is the 2nd respondent in the appeal, to hand over
possession of the sites and pointed out to the that the 4th repondents were incurring losses by
reason of delay in delivery of possession, but on account of the intransigence of A. S. Irani the
Ist respondent could not arrange to hand over possession of the sites to the 4th respondents.
Meanwhile one K. S, Irani who owned Cafe Excelsior filed Suit No. 6544 of 1977 in the City
Civil Court, Bombay against the respondents challenging the decision of the Ist respondent to
accept the tender of the 4th respondents and took out a notice of motion for restraining the 1 st
respondent from taking any further steps pursuant to the acceptance of the tender. K. S. Irani
obtained an ad- interim injunction against the respondents but after hearing the respondents, the
City Civil Court vacated the ad-interim injunction and dismissed the notice of motion by an
order dated 10th october, 1977. An appeal was preferred by K. S. Irani against this order, but the
appeal was dismissed by the High Court on 19th october, 1977. Immediately thereafter, on the
same day, the Ist respondent handed over possession of two, sites to the 4th respondents and the
4th respondents proceeded to set up snack bars on the two sites and started business of catering
at the two snack bars. These two sites handed over to the 4th respondents were different from the
sites occupied by A.S. Irani, because A. S. Irani refused to vacate the sites in his occupation. So
far as the site for the restaurant was concerned, the Ist respondent could not hand over the
possession of it to the 4th respondents presumably because there was no other appropriate site
available other than the one occupied by A. S. Irani. Since A. S. lrani refused to hand over
possession of the sites occupied by him to the Ist respondent, even though his contract had come
to an end, and continued to carry on the business of running the restaurant and the snack bars on
these sites, the Ist respondent was constrained to file suit No. 8032 of 1977 against A. S. Irani in
the City Civil Court at Bombay and in that suit, an injunction was obtained by the 1st respondent
restraining A. S. Irani from running or conducting the restaurant and the snack bars or from
entering the premises save and except for winding up the restaurant and the snack bars. A. S.
Irani preferred an appeal against the order granting the injunction, but the appeal was rejected
and ultimately a petition for special leave to appeal to this Court was also turned down on 31st
July, 1978.
This was, however, not to be the end of the travails of the 4th respondents. for, as soon as the
appeal preferred by K. S. Irani against the order dismissing his notice of motion was rejected by
the High Court on 19th October, 1977, A. S. Irani filed another suit being suit No. 8161 of 1977
in the City Civil Court, Bombay on 24th October,1977 seeking mandatory injunction for removal
of the two snack bars put up by the 4th respondents. This was one more attempt by A. S. Irani to
prevent the 4th respondents from obtaining the benefit of the contract awarded to them by the Ist
respondent. He, however, did not succeed in obtaining ad- interim injunction and we are told that
the notice of nation taken out by him is still pending in the City Civil Court. It will thus be seen
that A. S. Irani failed in his attempts to prevent the 4th respondents from obtaining the contract
and enjoying its benefit. The 4th respondents put up two snack bars on the sites provided by the
1st respondent and started running the two snack bars from 1 9th october? 1977. The restaurant
however, could not be put up on account of the inability of the Ist respondent to provide
appropriate site to the 4th respondents and, therefore, the licence fee for the two snack bars had
to be settled and it was fixed at Rs. 4.50O/- per month by mutual agreement between the parties.
But it seems that the 4th respondents were not destined to be left in peace to run the two snack
bars and soon after the dismissal of the appeal of A. S. Irani on l9th october, 1977 and the failure
of A. S. Irani to obtain an ad interim mandatory injunction in the suit filed by him against the 1st

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and the 4th respondents, the appellant filed writ petition No. 1582 of 1977 in the High Court of
Bombay challenging the decision of the 1st respondent to accept the tender of the 4th
respondents.
The writ petition was moved before a Single Judge of the High Court on 8th November, 1977
after giving prior notice to the respondent and after hearing the parties, the learned Single Judge
summarily rejected the writ petition. The appellant preferred an appeal to the Division Bench of
the High Court against the order rejecting the writ petition and on notice being issued by the
Division Bench, the 1st and the 4th respondents filed their respective affidavits in reply showing
cause against the admission of the appeal. The Division Bench after considering the affidavits
and hearing the parties rejected the appeal in limine on 21st February, 1978.
The appellant thereupon filed a petition for special leave to appeal to this Court and since it was
felt that the questions raised in the appeal were of seminal importance, this Court granted special
leave and decided to hear the appeal at an early date after giving a further opportunity to the
parties to file their respective affidavits. That is how the appeal has now come before us for final
hearing with full and adequate material placed before us on behalf of both the parties.
The main contention urged on behalf of the appellant was that in paragraph (1) of the notice
inviting tenders the 1st respondent had stipulated a condition of eligibility by providing that a
person submitting a tender must be a "registered IInd class Hotelier having at least 5 years
experience." This was a condition of eligibility to be satisfied by every person submitting a
tender and if in case of any person, this condition was not satisfied, his tender was ineligible for
being considered.
The 1st respondent, being a State within the meaning of Art. 12 of the Constitution or in any
event a public authority, was bound to give effect to the condition of eligibility set up by it and
was not entitled to depart from it at its own sweet will, without rational justification. The 4th
respondents had experience of catering only in canteens and did not have 5 years' experience of
running a IInd class hotel or restaurant and hence they did not satisfy the condition of eligibility
and yet the 1st respondent accepted the tender submitted by them. This was clearly in violation
of the standard or norm of eligibility set up by the 1 respondent and the action of the 1st
respondent in accepting the tender of the 4th respondents was clearly invalid. Such a departure
from the standard or norm of eligibility had the effect of denying equal opportunity to the
appellant and others of submitting their tenders and being considered for entering into contract
for putting up and running the restaurant and two snack bars. The appellant too was not a
registered 2nd class hotelier with 5 years' experience and was in the same position as the 4th
respondents vis-a-vis this condition of eligibility and he also could have submitted his tender and
entered the field of consideration for award of the contract, but he did not do so because of this
condition of eligibility which he admittedly did not satisfy. The action of the 1st respondent in
accepting the tender of the 4th respondents had, therefore the effect of denying him equality of
opportunity in the matter of consideration for award of the contract and hence it was
unconstitutional as being in violation of the equality clause. This contention of the appellant was
sought to be met by a threefold argument on behalf of the 1 st and the 4th Respondents. The first
head of the argument was that grading is given by the E Bombay City Municipal Corporation
only to hotels or restaurants and not persons running them and hence there can be a 2nd grade

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hotel or restaurant but not a 2nd grade hotelier and the requirement in paragraph (1) of the notice
that a tenderer must be a registered 2nd grade hotelier was therefore a meaningless requirement
and it could not be regarded as laying clown any condition of eligibility. It was also urged that in
any event what paragraph (] ) of the notice required was not that a person tendering must have 5
years' experience of running a 2nd grade hotel, but he should have sufficient experience to be
able to run a 2nd grade hotel and the 4th respondents were fully qualified in this respect since
they had over 10 years' experience in catering to canteens of well known companies, clubs and
banks. It was further contended in the alternative that paragraph (8) of the notice clearly provided
that the acceptance of the tender- would rest with the Airport Director who did not bind himself
to accept any tender and reserved to himself the right to reject all or any of the tenders without
assigning any reasons therefor and it was, therefore, competent to the 1st respondent to reject all
the tenders and to nogotiate with any person it considered fit to enter into a contract and this is in
effect and substance what the 1st respondent did when he accepted the tender of the 4th
respondents. The second head of argument was that paragraph (1) of the notice setting out the
condition of eligibility had no statutory force nor was it issued under any administrative rules
and, therefore, even if there was any departure from the standard or norm of eligibility set out in
that paragraph, it was not justiciable and did not furnish any cause of action to the appellant. It
was competent to the 1st respondent to give the contract to any one it thought fit and it was not
bound by the standard or norm of eligibility set out in paragraph (l) of the notice. It was
submitted that in any event the appellant had no right to complain that the 1st respondent had
given the contract to the 4th respondents in breach of the condition of eligibility laid down in
paragraph (1) of the notice. And lastly, under the third head of argument, it was submitted on
behalf. Of the 1st and the 4th respondents that in any view of the matter, the writ petition of the
appellant was liable to be rejected in the exercise of its discretion by the Court, since the
appellant had no real interest but was merely a nominee of A. S. Irani who had been putting up
one person after another to start litigation with a view to preventing the award of the contract to
the 4th respondents. The appellant was also guilty of laches and delay in filing the writ petition
and the High Court was justified in rejecting the writ petition in limine particularly in view of the
fact that during the period between the date of acceptance of the tender and the date of filing of
the writ petition, the 4th respondents had spent an aggregate sum of about Rs. 1,25,000/- in
making arrangements for putting up the restaurant and two snack bars. These were the rival
contentions urged on behalf of the parties and we shall now proceed to discuss them in the order
in which we have set them out.
Now it is clear from paragraph (1) of the notice that tenders were invited only from "registered
2nd Class hoteliers having at least 5 years' experience". It is only if a person was a registered 2nd
Class hotelier having at least 5 years' experience that he could, on the terms of paragraph (1) of
the notice, submit a tender. Paragraph (1) of the notice prescribed a condition of eligibility which
had to be satisfied by every person submitting a tender and if, in a given case, a person
submitting a tender did not satisfy this condition, his tender was not eligible to be considered.
Now it is true that the terms and conditions of the tender form did not prescribe that the tenderer
must be a registered IInd Class hotelier having at least 5 years' experience nor was any such
stipulation to be found in the form c f the agreement annexed to the tender but the notice inviting
tenders published in the newspapers clearly stipulated that tenders may be submitted only by
registered llnd Class hoteliers having at least 5 years' experience and this tender notice was also
included amongst the documents handed over to prospective tenderers when they applied for

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tender forms. Now the question is, what is the meaning of the expression "registered Ilnd Class
hotelier", what category of persons fall within the meaning of this description ? This is a
necessary enquiry in order to determine whether the 4th respondents were eligible to submit a
tender. It is clear from the affidavits and indeed there was no dispute about it that different
grades are given by the Bombay City Municipal Corporation to hotels and restaurants and,
therefore, there may be a registered Ilnd Class Hotel but no such grades are given to persons
running hotels and restaurants and hence it would be inappropriate to speak of a person as a
registered llnd Class hoteIier. But on that account would it be right to reject the expression
"registered IInd Class hotelier" as meaningless and deprive paragraph (1) of the notice of any
meaning and effect. We do not think such a view would be justified by any canon of
construction. It is a well settled rule of interpretation applicable alike to documents as to statutes
that, save for compelling necessity, the court should not be prompt to ascribe superfluity to the
language of a document "and should be rather at the outset inclined to suppose every word
intended to have some effect or be of some use". To reject words as insensible should be the last
resort of judicial interpretation, for it is an elementary rule based on common sense that no
author of a formal document intended to be acted upon by the others should be presumed to use
words without a meaning. The court must, as far as possible, avoid a construction which would
render the words used by the author of the document meaningless and futile or reduce silence
any part of the document and make it altogether inapplicaple. Now, here the expression used in
paragraph (1) of the notice was "registered IInd Class hotelier" and there can be no doubt that by
using, this expression the Ist respondent intended to delineate a certain category of persons who
alone should be eligible to submit a tender. The Ist respondent was not acting aimlessly or
insensibly in insisting upon this requirement nor was it indulging, in a meaningless and futile
exercise. It had a definite purpose in view when it laid down this condition of eligibility in
paragraph (1) of the notice. It is true that the phraseology used by the Ist respondent to express
its intention was rather inapt but it is obvious from the context that the expression "registered
llnd Class hotelier" was loosely used to denote a person conducting or running a IInd Class hotel
or restaurant. It may be ungrammatical but it docs not offend common-sense to describe a person
running a registered IInd grade hotel as a registered IInd grade hotelier. This meaning is quite
reasonable and does not do any violence to the language and makes sense of the provision
contained in paragraph (1) of the notice. We must, in the circumstances, hold that, on a proper
construction, what paragraph (1) of the notice required was that only a person running a
registered llnd Class hotel or restaurant and having at least 5 years' experience as such should be
eligible to submit a tender. This was a condition of eligibility and it is difficult to see how this
condition could be said to be satisfied by any person who did not have five years' experience of
running a IInd Class hotel or restaurant. The test of eligibility laid down was an objective test
and not a subjective one. What the condition of eligibility required has that the person submitting
a tender must have 5 years' experience of running a II Class hotel, as this would ensure by an
objective test that he was capable of running a Il Class restaurant and it should not be left to the
Ist respondent to decide in its subjective discretion that the person tendering was capable of
running such a restaurant. If therefore, a person submitting a tender did not have at least 5 years'
experience of running a II Class hotel, he was not eligible to submit the tender and it would not
avail him to say that though he did not satisfy this condition, he was otherwise capable of
running a IInd Class restaurant and should, therefore, be considered. This was in fact how the 1
st respondent itself understood this condition of eligibility. When the 4th respondents submitted
their tender along with Their Letter dated 24th January, 1977, it appeared from the documents

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submitted by the 4th respondents that they did not have 5 years' experience of running a II Class
restaurant. The 1st respondent by its letter dated l5th February 1977 required the 4th respondents
to produce documentary evidence to show that they were "registered II Class hotelier having at
least 5 years' experience." The 1st respondent did not regard this requirement of eligibility as
meaningless or unnecessary and wanted to be satisfied that the 4th respondent did fulfil this
requirement. Now, unfortunately for the 4th respondents, the had over lO years' experience of
running can teens but at the date when they submitted their tender, they cannot running a II grade
hotel or restaurant nor did they have 5 years' experience of running such a hotel or restaurant.
Even if the experience of the 4th respondents in the catering line were taken into account from
1962 onwards, it would not cover a total period of more than 4 years 2 months so far as catering
experience in llnd Grade hotels and restaurants is concerned. The 4th respondents thus did not
satisfy the condition of eligibility laid down in paragraph (1) of the notice and in fact this was
implidely conceded by the 4th respondents in their letter dated 26th February, 1977 where A they
stated that they had "experience equivalent to that of a 2nd class or even 1st class hotelier." The
4th respondents were, accordingly, not eligible for submitting a tender and the action of the 1st
respondent in accepting their tender was in contravention of paragraph (1) of the notice.
It was suggested on behalf of the 1st and the 4th respondents that there was nothing wrong in the
1st respondent giving the contract to the 4th respondents since it was competent to the 1st
respondent to reject all the tenders received by it and to negotiate directly with The 4th
respondents for giving them the contract and it made no difference that instead of following this
procedure, which perhaps might have resulted in the 4th respondents offering a smaller licence
fee and the 1 st respondent suffering a loss in the process, true 1 st respondent accepted The
tender of the 4th respondents. We do not think there is any force in this argument. It is true that
there was no statutory or administrative rule requiring the 1st respondent to give a contract only
by inviting tenders and hence the 1st respondent was entitled to reject all the tenders and, subject
to the constitutional norm laid down in Art 14, negotiate directly for entering into a contract.
Paragraph (8) of the notice also made it clear that the 1st respondent was not bound to accept any
tender and could reject all the tenders received by it. But here the 1st respondent did not reject
the tenders outright and enter into direct negotiations with the 4th respondents for awarding the
contract. The process of awarding a contract by inviting tenders was not terminated or
abandoned by the 1st respondent by rejecting all the tenders but in furtherance of the process, the
tender of the 4th respondents was accepted by the 1st respondent. The contract was not given to
the 4th respondents as a result of direct negotiations. Tenders were invited and out of the tenders
received, the one submitted by the 4th respondents was accepted and the contract was given to
them. It is, therefore not possible to justify the action of the 1st respondent on the ground that the
1st respondent could have achieved the same result by rejecting all the tenders and entering into
direct negotiations with the 4th respondents.
That takes us to the next question whether the acceptance of the tender of the 4th respondents
was invalid and liable to be set aside at the instance of the appellant. It was contended on behalf
GI the 1st and the 4th respondents that the appellant had no locus to maintain the writ petition
since no tender was submitted by him and he was a mere stranger. The argument was that if the
appellant did not enter the field of competition by submitting a tender, what did it matter to him
whose tender was accepted; what grievance could he have if the tender of the 4th respondents
was wrongly accepted. A person whose tender was rejected might very well complain that the

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tender of someone else was wrongly accepted, but it was submitted, how could a person who
never tendered and who was at no time in the field, put forward such a complaint ? This
argument, in our opinion, is mis-conceived and cannot be sustained for a moment. The grievance
of the appellant, it may be noted, was not that his tender was rejected as a result of improper
acceptance of the tender of the 4th respondents, but that he was differentially treated and denied
equality of opportunity with the 4th respondents in submitting a tender. His complaint was that if
it were known that non-fulfilment of the condition of eligibility would be no bar to consideration
of a tender, he also would have submitted a tender and competed for obtaining a contract. But he
was precluded from submitting a tender and entering the field of consideration by reason of the
condition of eligibility, while so far as the 4th respondents were concerned, their tender was
entertained and accepted even though they did not satisfy the condition of eligibility and this
resulted in inequality of treatment which was constitutionally impermissible. This was the
grievance made by the appellant in the writ petition and there can be no doubt that if this
grievance were well founded, the appellant would be entitled to maintain the writ petition. The
question is whether this grievance was justified in law and the acceptance of the tender of the 4th
respondents was vitiated by any legal infirmity.
Now, there can be no doubt that what paragraph (1) of the notice prescribed was a condition of
eligibility which was required to be satisfied by every person submitting a tender. The condition
of eligibility was that the person submitting a tender must be conducting or running a registered
2nd class hotel or restaurant and he must have at least 5 years' experience as such and if he did
not satisfy this condition of eligibility his tender would not be eligible for consideration. This
was the standard or norm of eligibility laid down by the 1 st respondent and since the 4th
respondents did not satisfy this standard or norm, it was not competent to the 1st respondent to
entertain the tender of the 4th respondents. It is a well settled rule of administrative law that an
executive authority must be rigorously held to the standards by which it professes its actions to
be judged and it must scrupulously observe those Standards on pain of invalidation of an act in
violation of them. This rule was enunciated by Mr Justice Frankfurter in Viteralli v. Seton(l)
where the learned Judge said:
"An executive agency must be rigorously held to the standards by which it professes its action to
be judged. Accordingly, if dismissal from employment is based on a define(l procedure, even
though generous beyond the requirement that bind such agency, that procedure must be
scrupulously observed. This judicially evolved rule of administrative law is now firmly
established and, if I may add, rightly so. He that takes the procedural sword shall perish with the
sword.
This Court accepted the rule as valid and applicable in India in A. S. Ahuwalia v. Punjab(2) and
in subsequent decision given in Sukhdev v. Bhagatram,(3) Mathew, J., quoted the above-referred
observations of Mr. Justice Frankfurter with approval. It may be noted that this rule, though
supportable also as emanation from Article 14, does not rest merely on that article. It has an
independent existence apart from Article 14. It is a rule of administrative law which has been
judicially evolved as a check against exercise of arbitrary power by the executive authority. If we
turn to the judgment of Mr. Justice Frankfurter and examine it, we find that he has not sought to
draw support for the rule from the equality clause of the United States Constitution, but evolved
it purely as a rule of administrative law. Even in England, the recent trend in administrative law

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is in that direction as is evident from what is stated at pages 540-41 in Prof. Wade's
Administrative Law 4th edition. There is no reason why we should hesitate to adopt this rule as a
part of our continually expanding administrative law. To- day with tremendous expansion of
welfare and social service functions, increasing control of material and economic resources and
large scale assumption of industrial and commercial activities by the State, the power of the
executive Government to affect the lives of the people is steadily growing. The attainment of
socio-economic justice being a conscious end of State policy, there is a vast and inevitable
increase in the frequency with which ordinary citizens come into relationship of direct encounter
with State power-holders. This renders it necessary to structure and restrict the power of the
executive Government so as to prevent its arbitrary application or exercise. Whatever be the
concept of the rule of law, whether it be the meaning given by Dicey in his "The Law of the
Constitution" or the definition given by Hayek in his "Road to Serfdom' and 'Constitution of
liberty" or the exposition set-forth by Harry Jones in his "The Rule of Law and the Welfare
State", there is, as pointed out by Mathew, J., in his article on "The Welfare State, Rule of Law
and Natural Justice" in "democracy Equality and Freedom," "substantial agreement is in justice
thought that the great purpose of the rule of law notion is the protection of the individual against
arbitrary exercise of power, wherever it is found". It is indeed unthinkable that in a democracy
governed by the rule of law the executive Government or any of its officers should possess
arbitrary power over the interests of the individual. Every action of the executive Government
must be informed with reason and should be free from arbitrariness. That is the very essence of
the rule of law and its bare minimal requirement. And to the application of this principle it makes
no difference whether the exercise of the power involves affection of some right or denial of
some privilege.
To-day the Government, is a welfare State, is the regulator and dispenser of special services and
provider of a large number of benefits, including jobs contracts, licences, quotas, mineral rights
etc. The Government pours forth wealth, money, benefits, services, contracts, quotas and
licences. The valuables dispensed by Government take many forms, but they all share one
characteristic. They are steadily taking the place of traditional forms of wealth. These valuables
which derive from relationship to Government are of many kinds. They comprise social security
benefits, cash grants for political sufferers and the whole scheme of State and local welfare. Then
again, thousands of people are employed in the State and the Central Governments and local
authorities. Licences are required before one can engage in many kinds of business or work. The
power of giving licences means power to withhold them and this gives control to the
Government or to the agents of Government on the lives of many people. Many individuals and
many more businesses enjoy largess in the form of Government contracts. These contracts often
resemble subsidies. It is virtually impossible to lose money on them and many enterprises are set
up primarily to do business with Government. Government owns and controls hundreds of acres
of pubic Land valuable for mining and other purposes. These resources are available for
utilisation by private corporations and individuals by way of lease or licence. All these mean
growth in the Government largess and with the increasing magnitude and range of governmental
functions as we move closer to a welfare State, more and more of our wealth consists of these
new forms. Some of these forms of wealth may be in the nature of legal rights but the large
majority of them are in the nature of privileges But on that account, can it be said that they do
not enjoy any legal protection ? Can they be regarded as gratuity furnished by the State so that
the State may withhold, grant or revoke it at its pleasure ? Is the position of the Government in

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this respect the same as that of a private giver? We do not think so. The law has not been slow to
recognise the importance of this new kind of wealth and the need to protect individual interest in
it and with that end in view, it has developed new forms of protection. some interests in
Government largess, formerly regarded as privileges, have been recognised as rights while others
have been given legal protection not only by forging procedural safeguards but also by
confinding/structuring and checking Government discretion in the matter of grant of such
largess. The discretion of the Government has been held to be not unlimited in that the
Government cannot give or withhold largess in its arbitrary discretion or at its sweet will. It is
insisted, as pointed out by Prof. Reich in an especially stimulating article on "The New Property"
in 73 Yale Law Journal 733, "that Government action be based on standards that are not arbitrary
or unauthorised." "The Government cannot be permitted to say that it will give jobs or enter into
contracts or issue quotas or licences only in favour of those having grey hair or belonging to a
particular political party or professing a particular religions faith. The Government is still the
Government when it acts in the matter of granting largess and it cannot act arbitrarily. It does not
stand in the same position as a private individual We agree with the observations of Mathew, J.,
in V. Punnan Thomas v. State of Kerala(1) that: "The Government is not and should not be as
free as an individual in selecting the recepients for its largess. Whatever its activity, the
Government is still the Government and will be subject to restraints, inherent in its position in a
democratic society. A democratic Government cannot lay down arbitrary and capricious
standards for the choice of persons with whom alone it will deal". The same point was made by
this court in Erusian Equipment and Chemicals Ltd. v. State of West Bengal(2) where the
question was whether black-listing of a person without giving him an opportunity to be heard
was bad ? Ray, C. J., speaking on behalf of himself and his colleagues on the Bench pointed out
that black-listing on a person not only affects his reputation which is in Poundian terms an
interest both of personality and substance, but also denies him equality in the matter of entering
into contract with the Government and it cannot, therefore, be supported without fair hearing. It
was argued for the Government that no person has a right to enter into contractual relationship
with the Government and the Government, like any other private individual, has the absolute
right to enter into contract with any one it pleases. But the Court, speaking through the learned
Chief Justice, responded that the Government is not like a private individual who can pick and
choose the person with whom it will deal, but the Government is still a Government when it
enters into contract or when it is administering largess and it cannot, without adequate reason,
exclude any person from dealing with it or take away largess arbitrarily. The learned Chief
Justice said that when the Government is trading with the public, "the democratic form of
Government demands equality and absence of arbitrariness and discrimination in such
transactions. The activities of the Government have a public element and, therefore, there should
be fairness and equality. The State need not enter into any contract with anyone, but if it does so,
it must do so fairly without discrimination and without unfair procedure." This proposition
would hold good in all cases of dealing by the Government with the public, where the interest
sought to be protected is a privilege. It must, therefore, be taken to be the law that where the
Government is dealing with the public, whether by way of giving jobs or entering into contracts
or issuing quotas or licences or granting other forms of largess, the Government cannot act
arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its
action must be in conformity with standard or norms which is not arbitrary, irrational or
irrelevant. The power or discretion of the Government in the matter of grant of largess including
award of jobs, contracts, quotas, licences etc., must be confined and structured by rational,

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relevant and non-discriminatory standard or norm and if the Government departs from standard
or norm in any particular case or cases, the action of the Government would be liable to be struck
down, unless it can be shown by the Government that the departure was not arbitrary, but was
based on some valid principle which in itself was not irrational, unreasonable or discriminatory.
Now, it is obvious that the Government which represents the executive authority of the State,
may act through the instrumentality Or agency of natural persons or it may employ the
instrumentality or agency of juridical persons to carry out its functions. In the early days, when
the Government had limited functions, it could operate effectively through natural persons
constituting its civil service and they were found adequate to discharge governmental functions,
which were of traditional vintage. But as the tasks of the Government multiplied the advent of
the welfare State, it began to be increasingly felt that the framework of civil service was not
sufficient to handle the new tasks which were often of specialised and highly technical character.
The inadequacy of the civil service to deal with these new problems came to be realised and it
became necessary to force a new instrumentality or administrative device for handling these new
problems. It was in these circumstances and with a view to supplying this administrative need
that the public corporation came into being as the third arm of the Government. As early as 1819
the Supreme Court of the United States in Mac Cullough v. Maryland(1) held that the Congress
has power to charter corporations as incidental to or in aid of governmental functions and, as
pointed out by Mathew, J., in Sukhdev v. Bhagat Ram (supra) such federal corporations would
ex-hypothesi be agencies of the Government. In Great Britain too, the policy of public
administration through separate corporations was gradually evolved and the conduct of basic
industries through giant corporations has now become a permanent feature of public life. So far
as India is concerned, the genesis of the emergence of corporations as instrumentalities or
agencies of Government is to be found in the Government of India Resolution on Industrial
Policy dated 6th April, 1948 where it was stated inter alia that "management of State enterprises
will as a rule be through the medium of public corporation under tile statutory control of the
Central Government who will assume such powers as may be necessary to ensure this." It was in
pursuance of the policy envisaged in this and subsequent resolutions on Industrial Policy. that
corporations were created by Government for setting up and management of public enterprises
and carrying out other public functions. Ordinarily these functions could have been carried out
by Government departmentally through its service personnel, but the instrumentality or agency
of the corporations was resorted to in these cases having regard to the nature of the task to be
performed. The corporations acting as instrumentality or agency of Government would obviously
be subject to the same limitations in the field of constitutional and administrative law as
Government itself, though in the eye of the law, they would be distinct and independent legal
entities. If Government acting through its officers is subject to certain constitutional and public
law limitations, it must follow a fortiori that Government acting through the instrumentality or
agency of corporations should equally be subject to the same limitations. But the question is how
to determine whether a corporation is acting as instrumentality or agency of Government. It is a
question not entirely free from difficulty.
A corporation may be created in one of two ways. It may be either established by statute or
incorporated under a law such as the Companies Act 1956 or the Societies Registration Act
1860. Where a Corporation is wholly controlled by Government not only in its policy making but
also in carrying out the functions entrusted to it by the law establishing it or by the Charter of its

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incorporation, there can be no doubt that it would be an instrumentality or agency of
Government. But ordinarily where a corporation is established by statute, it is autonomous in its
working, subject only to a provision, often times made, that it shall be bound by any directions
that may be issued from time to time by Government in respect of policy matter. So also a
corporation incorporated under law is managed by a board of directors or committee of
management in accordance with the provisions of the statute under which it is incorporated.
When does such a corporation become an instrumentality or agency of Government ? Is the
holding of the entire share capital of the Corporation by Government enough or is it necessary
that in addition, there should be a certain amount of direct control exercised by Government and,
if so, what should be the nature of such control ? Should the functions which the corporation is
charged to carry out possess any particular characteristic or feature, or is the nature or the
functions immaterial ? Now, one thing is clear that if the entire share capital of the corporation is
held by Government, it would go a long way towards indicating that the corporation is an
instrumentality or agency of Government. But, as is quite often the case, a corporation
established by statute may have no shares or shareholders, in which case it would be a relevant
factor to consider whether the administration is in the hands of a board of directors appointed by
Government, though this consideration also may not be determinative, because even while the
directors are appointed by Government, they may be completely free from governmental control
in the discharge of their functions. What then are the tests to determine whether a corporation
established by statute or incorporated under law is an instrumentality or agency of Government ?
It is not possible to formulate an all-inclusive or exhaustive test which would adequately answer
this question 'there is no cut and dried formula, which would provide the correct division of
corporations into those which are instrumentalities or agencies of Government and those which
are not.
The analogy of the concept of State action as developed in the United States may not, however,
be altogether out of place while considering this question. The decisions of the court in the
United States seem to suggest that a private agency, if supported by extraordinary assistance
given by the State, may be subject to the same constitutional limitations as the State. Of course, it
may be pointed out that "the State's general common law and statutory structure under which its
people carry on their private affairs, own property and contract, each enjoying equality in terms
of legal capacity, is not such State assistance as would transform private conduct into State
action". But if extensive and unusual financial assistance is given and the purpose of the
Government in giving such assistance coincides with the purpose for which the corporation is
expected to use the assistance and such purpose is if public character, it may be a relevant
circumstance supporting an extensive that the corporation is an instrumentality or agency of
Government. The leading case on the subject in the United States is Kerr v. Eneck Pratt Free
Library(1). The Library system in question in this case was established by private donation in
1882, but by 1944, 99 per cent of the system's budget was supplied by the city, title to the library
property was held by the city, employees there paid by the city payroll officer and a high degree
of budget control was exercised or available to the city government. On these facts the Court of
Appeal required the trustees managing the system to abandon a discriminatory admission policy
for its library training courses. It will be seen that in this case there was considerable amount of
State control of the library system in addition to extensive financial assistance and it is difficult
to say whether, in the absence of such control it would have been possible to say that the action
of the trustees constituted State action. Thomas P. Lewis has expressed the opinion in his article

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on "The meaning of State Action" (60 Colombia Law Review 1083) that in this case "it is
extremely unlikely that absence of public control would have changed the result as long as 99%
of the budget of a nominally private institution was provided by government. Such extensive
governmental support should be sufficient identification with the Government to subject the
institution to the provisions of the Fourteenth Amendment".
It may, therefore, be possible to say that where the financial assistance of the State is so much as
to meet almost entire expenditure of the corporation, it would afford some indication of the
corporation being impregegnated with governmental character. But where financial assistance is
not so extensive, it may not by itself, without anything more render the corporation an
instrumentality or agency of government, for there are many private institutions which are in
receipt of financial assistance from the State and merely on that account, they cannot be
classified as State agencies. Equally a mere finding of some control by the State would not be
determinative of the question "since a State has considerable measure of control under its police
power over all types of business operations". But 'a finding of State financial support plus an
unusual degree of control over the management and policies might lead one to characteristic an
operation as State action" vide Sukhdev v. Bhagatram(1). So also the existence of deep and
pervasive State control may afford an indication that the Corporation is a State agency or
instrumentality. It may also be a relevant factor to consider whether the corporation enjoys
monopoly status which is State conferred or State protected. There can be little doubt that State
conferred or State protected monopoly status would be highly relevant in assessing the aggregate
weight of the corporation's ties to the State. Vide the observations of Douglas, J., in Jackson v.
Metropolitan Edison Co[419 U. S. 345: 42 L. ed. 2nd 477].
There is also another factor which may be regarded as having a bearing on this issue and it is
whether the operation of the corporation is an important public function. It has been held in the
United States in a number of cases that the concept of private action must yield to a conception
of State action where public functions are being per formed. Vide Arthur S. Miller: "The
Constitutional Law of the Security State" (10 Stanford Law Review 620 at 664). It was pointed
out by Douglas, J., in Evans v. Newton [382 U S. 296: 15 L. ed 2nd 373] that "when private
individuals or groups are endowed by the State with powers or functions governmental in nature,
they become agencies or instrumentalities of the State". Of course, with the growth of the
welfare State, it is very difficult to define what functions are governmental and what are not,
because, as pointed out by Villmer, L.J., in Pfizer v.Ministry of Health [[1964] I Ch. 614], there
has been, since mid-Victorian times, "a revolution in political thought and a totally different
conception prevails today as to what is and what is not within the functions of Government".
Douglas, J., also observed to the same effect in New York v. United States [326 U.S. 572]: " A
State's project is as much a legitimate governmental activity whether it is traditional or akin to
private enterprise, or conducted for profit." Cf. Helverillg v. Gerhardt[304 U.S. 405, 426, 427]. A
State may deem it as essential to its economy that it own and operate a railroad, a mill, or an
irrigation system as it does to own and operate bridges, street lights, or a sewage disposal plant.
What might have been viewed in an earlier day as an improvident or even dangerous extension
of state activities may today be deemed indispensable. It may be noted that besides the so called
traditional functions, the modern State operates a multitude of public enterprises and discharges a
host of other public functions. If the functions of the corporation are of public importance and

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closely related to governmental functions, it would be a relevant factor in classifying the
corporation as an instrumentality or agency of Government. This is precisely what was pointed
out by Mathew, J., in Sukhdev v. Bhagatram (supra) where the learned Judge said that
"institutions engaged in matters of high public interest or performing public functions are by
virtue of the nature of the functions performed government agencies. Activities which are too
fundamental to the society are by definition too important not to be considered government
functions."
This was one of the principal tests applied by the United States Supreme Court in Marsh v.
Alabama[326 U.S. 501: 19 L. ed. 265]for holding that a corporation which owned a Company
town was subject to the same constitutional limitations as the State. This case involved the
prosecution of Marsh, a member of the Johevah's witnesses sect, under a state trespass statute for
refusing to leave the side walk of the company town where she was distributing her religious
pamphlets. She was fined $ 5/- and aggrieved by her conviction she carried the matter right upto
the Supreme Court contending successfully that by reason of the action of the corporation her
religious liberty had been denied. The Supreme Court held that administration of private property
such as a town, though privately carried on, was, nevertheless, in the nature of a public function
and that the private rights of the corporation must, therefore, be exercised within constitutional
limitations and the conviction for trespass was reversed. The dominant theme of the majority
opinion written by Mr. Justice Black was that the property of the corporation used as a town not
recognisably different from other towns, lost its identification as purely private property. It was
said that a town may be privately owned and managed but that does not necessarily aIlow the
corporation to treat it as if it was wholly in the private sector and the exercise of constitutionally
protected rights on the public ,street of a company town could not be denied by the owner. "The
more an owner, for his advantage, opens up his property for use by the public in general, the
more do his rights become circumscribed by the statutory and constitutional rights of those who
use it. . . Thus, the owners of privately held bridges, ferries, turnpikes and railroads may not
operate them as freely as a farmer does his farm. Since these facilities are built and operated
primarily to benefit the public and since their operation is essentially a public function, it is
subject to state regulation". Mr. Justice Frankfurter, concurring, reduced the case to simpler
terms. He found in the realm of civil liberties the need to treat a town, private or not, as a town.
The function exercised by the corporation was in the nature of municipal function and it was,
therefore, subject to the constitutional limitations placed upon State action. We find that the same
test of public or governmental character of the function was applied by the Supreme Court of the
United States in Evans v. Newton (supra) and Smith v. Allwight [321 U. S. 649]. But the
decisions show that even this test of public or governmental character of the function is not easy
of application and does not invariably lead to the correct inference because the range of
governmental activity is broad and varied and merely because an activity may be such as may
legitimately be carried on by Government, it does not mean that a corporation, which is
otherwise a private entity, would be an instrumentality or agency of Government by reason of
carrying on such activity. In fact, it is difficult to distinguish between governmental functions
and non-governmental functions. Perhaps the distinction between governmental and non-
governmental functions is not valid any more in a social welfare State where the laissez faire is
an outmoded concept and Herbert Spencer's social statics has no place. The contrast is rather
between governmental activities which are private and private activities which are governmental.
(Mathew, J. Sukhdev v. Bhagatram (supra) at p. 652). But the public nature of the function, if

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impregnated with governmental character or "tied or entwined with Government" or fortified by
some other additional factor, may render the corporation an instrumentality or agency of
Government. Specifically, if a department of Government is transferred to a corporation, it
would be a strong factor supportive of this inference.
It will thus be seen that there are several factors which may have to be considered in determining
whether a corporation is an agency or instrumentality of Government. We have referred to some
of these factors and they may be summarised as under:
Whether there is any financial assistance given by the State, and if so, what is the
magnitude of such assistance?
Whether there is any other form of assistance, given by the State, and if so, whether it is
of the usual kind or it is extraordinary,
Whether there is any control of the management and policies of the corporation by the
State and what is the nature and extent of such control,
Whether the corporation enjoys State conferred or State protected monopoly status and
Whether the functions carried out by the corporation are public functions closely related
to governmental functions.
This particularisation of relevant factors is however not exhaustive and by its very nature it
cannot be, because with increasing assumption of new tasks, growing complexities of
management and administration and the necessity of continuing adjustment in relations between
the corporation and Government calling for flexibility, adapt ability and innovative skills, it is
not possible to make an exhaustive enumeration of the tests which would invariably and in all
cases provide an unfailing answer to the question whether a corporation is governmental
instrumentality or agency. Moreover even amongst these factors which we have described, no
one single factor will yield a satisfactory answer to the question and the court will have to
consider the cumulative effect of these various factors and arrive at its decision on the basis of a
particularised inquiry into the facts and circumstances of each case. "the dispositive question in
any stale action case," as pointed out by Douglas, J., in Jackson v. Metropolitan Edison
Company (supra) "is not whether any single fact or relationship presents a sufficient degree of
state involvement, but rather whether the aggregate of all relevant factors compels a finding of
state responsibility." It is not enough to examine seriatim each of the factors upon which a
corporation is claimed to be an instrumentality or agency of Government and to dismiss each
individually as being insufficient to support a finding of that effect. It is the aggregate or
cumulative affect of all the relevant factors that is controlling. G Now, obviously where a
corporation is an instrumentality or agency of Government, it would, in the exercise of its power
or discretion, be subject to the same constitutional or public law limitations as Government. The
rule inhibiting arbitrary action by Government which we have discussed above must apply
equally where such corporation is dealing with the public, whether by way of giving jobs or
entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship with
any person it likes at its sweetwill, but its action must be in conformity with some principle
which meets the test of reason and relevance. This rule also flows directly from the doctrine of
equality embodied in Art. 14. It is now well settled as a result of the decisions of this Court hl E.
P. Rayappa v. State cf Tamil Nadu(l) and Maneka Gandhi v. Union of India(2) that Article 14
strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires

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that State action must not be arbitrary but must be based on some rational and relevant principle
which is non- discriminatory: it must not be guided by any extraneous or irrelevant
considerations, because that would be denial of equality. The principle of reasonableness and
rationality which is legally as well as philosophically an essential element of equality or non-
arbitrariness is protected by Article 14 and it must characterise every State action, whether it be
under authority of law or in exercise of executive power without making of law. The State
cannot, therefore act arbitrarily in entering into relationship, contractual or otherwise with a third
party, but its action must conform to some standard or norm which is rational and non-
discriminatory. This principle was recognised and applied by a Bench of this Court presided over
by Ray, C.J., in Erusian Equipment and Chemicals v. State of West Bengal (supra) where the
learned Chief Justice pointed out that "the State can carry on executive function by making a law
or without making a law. The exercise of such powers and functions in trade by the State is
subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal
protection of the laws. Equality of opportunity should apply to matters of public contracts. The
State has the right to trade. The State has there the duty to observe equality. An ordinary
individual can choose not to deal with any person The Government cannot choose to exclude
persons by discrimination. The order of black- listing has the effect of depriving a person of
equality of opportunity in the matter of public contract. A person who is on the approved list is
unable to enter into advantageous relations with the Government because of the order of
blacklisting.... A citizen has a right to claim equal treatment to enter into a contract which may
be proper, necessary and essential to his lawful calling....It is true that neither the petitioner nor
the respondent has any right to enter into a contract but they are entitled to equal treatment with
others who offer tender or quotations for the purchase of the goods." It must, therefore follow as
a necessary corollary from the principle of equality enshrined in Article 14 that though the State
is entitled to refuse to enter into relationship with any one, yet if it does so, it cannot arbitrarily
choose any person it likes for entering into such relationship and discriminate between persons
similarly circumstanced, but it must act in conformity with some standard or principle which
meets the test of reasonableness and non-discrimination and any departure from such standard or
principle would be invalid unless it can be supported or justified on some rational and non-
discriminatory ground. It is interesting to find that this rule was recognised and applied by a
Constitution Bench of this Court in a case of sale of kendu leaves by the Government of Orissa
in Rashbihari Panda v. State of Orissa.(1) The trade of kendu leaves in the State of Orissa was
regulated by the Orissa Kendu Leaves (Control of Trade) Act, 1961 and this Act created a
monopoly in favour of the State so far as purchase of kendu leaves from growers and pluckers
was concerned. Section 10 of the Act authorised the Government to sell or otherwise dispose of
kendu leaves purchased in such manner as the Government might direct. The Government first
evolved a scheme under which it offered to renew the Licences of those traders who in its view
had worked satisfactorily in the previous year and had regularly paid the amount due from them.
The scheme was challenged and realising that it might be struck down, the Government
withdrew the scheme and instead, decided to invite tenders for advance purchase of kendu leaves
but restricted the invitation to those individuals who had carried out contracts in the previous
year without default and to the satisfaction of the Government. This method of sale of kendu
leaves was also challenged by filing a writ petition on the ground inter alia that it was violative
of Articles ]4 and 19(1)(g) and this challenge, though negatived by the High Court, was upheld
by this Court in appeal. The Court pointed out that the original scheme of offering to enter into
contracts with the old licences and to renew their terms was open to grave objection, since it

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sought arbitrarily to exclude many persons interested in the trade and the new scheme under
which the Government restricted the invitation to make offers to those traders who had carried
out their contracts in the previous year without default and to the satisfaction of the Government
was also objectionable, since the right to make tenders for the purchase of kendu leaves being
restricted to a limited class of persons, it effectively shut out all other persons carrying on trade
in kendu leaves and also the new entrants into that business and hence it was ex-facie
discriminatory and imposed unreasonable restrictions upon the right of persons other than the
existing contractors to carry on business. Both the schemes evolved by the Government were
thus held to be violative of Articles 14 and 19(1)(g) because they "gave rise to a monopoly in the
trade in kendu leaves to certain traders and singled out other traders for discriminatory
treatment". The argument that existing contractors who had carried out their obligations in the
previous year regularly and to the satisfaction of the Government formed a valid basis of
classification bearing a just and reasonable relation to the object sought to be achieved by the
sales namely, effective execution of the monopoly in the public interest, was also negatived and
it was pointed out that: "exclusion of all persons interested in the trade, who were not in the
previous year licencees, is ex facie arbitrary; it had not direct relation to the object of preventing
exploitation of pluckers and growers of kendu leaves, nor had it any just or reasonable relation to
the securing of the full benefit from the trade, to the State".
The Court referred to the offer made by a well known manufacturer of bidis for purchase of the
entire crop of kendu leaves for a sum of Rs. 3 crores which was turned down by the Government
and expressed its surprise that no explanation was attempted to be given on behalf of the State as
to why such an offer, from which the State stood to gain more than Rs. 1 crore, was rejected by
the Government. It will be seen from this judgment that restricting the invitation to submit
tenders to a limited class of persons was held to be violative of the equality clause, because the
classification did not bear any. just and reasonable relation to the object sought to be achieved,
namely, selling of kendu leaves in the interest of general public. The standard or norm laid down
by the Government for entering into contracts of sale of tendu leaves with third parties was
discriminatory and could not stand the scrutiny of Article 14 and hence the scheme was held to
be invalid. The Court rejected the contention of the Government that by reason of section 10 it
was entitled to dispose of kendu leaves in such manner as it thought fit and there was no
limitation upon its power to enter into contracts for sale of kendu leaves with such persons it
liked. The Court held that the Government was, in the exercise of its power to enter into
contracts for sale of kendu leaves; subject to the constitutional limitation of Article 14 and it
could not act arbitrarily in selecting persons with whom to enter into contracts and discriminate
against others similarly situate. The Court criticized the Government for not giving any
explanation as to why an offer for a large amount was not accepted, the clearest implication
being that the Government must act in the public interest; it cannot act arbitrarily and without
reason and if it does so, its action would be liable to be invalidated. This decision wholly
supports the view we are taking in regard to The applicability of the rule against arbitrariness in
State action.
We may also in this connection refer to the decision of this Court in C. K. Achuthan v. State of
Kerala(1), where Hidayatullah, J., speaking on behalf of The Court made certain observation
which was strongly relied upon on behalf of the respondents. The facts of this case were that the
petitioner and the 3rd respondent Co-operative Milk Supply Union, Cannanore, submitted

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tenders for the supply of milk to the Government hospital at Cannanore for the year 1948-49.
The Superintendent who scrutinised the tenders accepted that of the petitioner and communicated
the reasons for the decision to the Director of Public Health. The resulting contract in favour of
the petitioner was, however, subsequently cancelled by issuing a notice in terms of clause (2) of
the tender, in pursuance of the policy of the Government that in the matter of supply to
Government Medical Institutions the Co-operative Milk Supply Union should be given contract
on the basis of prices filed by the Revenue Department. The petitioner challenged The decision
of the Government in a petition under Article 32 of the Constitution on the ground inter alia that
there had been discrimination against him vis-a-vis the 3rd respondent and as such, there was
contravention of Article 14 of the Constitution. The Constitution Bench rejected this contention
of the petitioner and while doing so, Hidayatullah, J., made the following observation: "There is
no discrimination, because it is perfectly open to the Government, even as it is to a private party,
to choose a person to their liking, to fulfil contracts which they wish to be performed. When one
person is choosen rather than another, the aggrieved party cannot claim the protection of Article
14, because the choice of the person to fulfil a particular contract must be left to the
Government." The respondents relied very strongly on this observation in support of their
contention that it is open to the 'State' to enter into contract with any one it likes and choosing
one person in preference to another for entering into a contract does not involve violation of
Article 1a. Though the language in which this observation is couched is rather wide, we do not
think that in making this observation, the Court. intended to lay down any absolute proposition
permitting the state to act arbitrarily in the matter of entering into contract with third parties. We
have no doubt that the Court could not have intended to lay down such a proposition because
Hidayatullah J. who delivered the judgment of the Court in this case was also a party to the
judgment in Rashbihari Panda v. State of Orissa (supra) which was also a decision of the
Constitution Bench, where it was held in so many terms that the State cannot act arbitrarily in
selecting persons with whom to enter into contracts. Obviously what the Court meant to say was
that merely because one person is chosen in preference to another, it does not follow that there is
a violation of Article 14, because the Government must necessarily be entitled to make a choice.
But that does not mean that the choice be arbitrary or fanciful. The choice must be dictated by
public interest and Must not be unreasoned or unprincipled.
The respondents also relied on the decision of this Court in Trilochan Mishra v. State of Orissa &
ors.(1) The complaint of the petitioner in that case was that the bids of persons making the
highest tenders were not accepted and persons who had made lesser bids were asked to raise their
bids to the highest offered and their re vised bids were accepted. The Constitution Bench
negatived this complaint and speaking through Mitter, J., observed:
"With regard to the grievance that in some cases the bids of persons making the highest tenders
were not accept ed, The facts are that persons who had made lower bids were asked to raise their
bids to the highest offered before the same were accepted. Thus there was no loss to Government
and merely because the Government preferred one tender to another no complaint can be
entertained. Government certainly has a right to enter into a contract with a person well known to
it and specially one who has faithfully performed his contracts in the past in preference to an
undesirable or unsuitable or untried person. Moreover, Government is not bound to accept the
highest tender but may accept a lower one in case it thinks that the person offering the lower
tender is on an overall consideration to be preferred to the higher tenderer." We fail to see how

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this observation can help the contention of the respondents. It does not say that the Government
can enter into contract with any one it likes arbitrarily and without reason. On the contrary, it
postulates that the Government may reject a higher tender and accept a lower one only when
there is valid reason lo do so, as for example, where it is satisfied that the person offering the
Lower tender is on an overall consideration preferable to the higher tenderer. There must be
some relevant reason for preferring one tenderer to another, and if there is, the Government can
certainly enter into contract with the former even though his tender may be lower but it cannot
do so arbitrarily or for extraneous reason.
There was also one other decision of this Court in State of Orissa v. Harinarayan Jaiswal &
ors.(1) which was strongly relied upon on behalf of the respondents. There the respondents were
the highest bidders at an auction held by the orissa Government through the Excise
Commissioner for the exclusive privilege of selling by retail country liquor in some shops. The
auction was held pursuant to an order dated 6th January, 1971 issued by the Government of
orissa in exercise of the power conferred under section 29(2) of the Bihar & orissa Excise Act,
1915 and clause (6) of this order provided that "no sale shall be deemed to be final unless
confirmed by the State Government who shall be at liberty to accept or reject any bid without
assigning any reason therefor". The Government of orissa did not accept any of the bids made at
the auction and subsequently sold the privilege by negotiations with some other parties. One of
the contentions raised on behalf of the petitioners in that case was that the power retained by the
Government "to accept or reject many bid without any reason therefor" was an arbitrary power
violative of Articles 14 and 19(1) (g). This contention was negatived and Hegde, J. speaking on
behalf of the Court observed:
"The Government is the guardian of the finances of the State. It is expected to protect the
financial interest of the State. Hence quite naturally, the legislature has empowered the
Government to see that there is no leakage in its revenue. It is for the Government to decide
whether the price offered in on auction sale is adequate. While accepting or rejecting a bid, it is
merely performing an executive function. The correctness of its conclusion is not open to judicial
review. We fail to see how the plea of contravention of Article 19(1)(g) or Article 14 can arise in
these cases. The Governments power to sell the exclusive privilege set out in section 22 was not
denied. It was also not disputed that these privileges could be sold by public auction. Public
auctions are held to get the best possible price. Once these aspects are recognised, there appears
to be no basis for contending that the owner of the privileges in question who had offered to sell
them cannot decline to accept the highest bid if he thinks that the price offered is inadequate."
It will be seen from these observations that the validity of clause (6) of the order dated 6th
January, 1971 was upheld by this Court on the ground that having regard to the object of holding
the auction, namely, to raise revenue, the Government was entitled to reject even the highest bid,
if it thought that the price offered was inadequate. The Government was not bound to accept the
tender of the person who offered the highest amount and if the Government rejected all the bids
made at the auction, it did not involve any violation of Article 14 or 19(1)(g). This is a self-
evident proposition and we do not see how it can be of any assistance to the respondents.
The last decision to which reference was made on behalf of the respondents was the decision in
P. R. Quenin v. M. K. Tendel(1) This decision merely reiterates the principle laid down in the

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earlier decisions in Trilochan Mishra v. State of Orissa (supra) and State of Orissa v.
Harinarayan Jaiswal (supra) and points out that a condition that the Government shall be at
liberty to accept or reject any bid without assigning any reason therefor is not violative of Article
14 and that "in matters relating to contracts with the Government, the latter is not bound to
accept the tender of the person who offers the highest amount". Now where does it say that such
a condition permits the Government to act arbitrarily in accepting a tender or that under the guise
or pretext of such a condition, the Government may enter into a contract with any person it likes,
arbitrarily and without reason. In fact the Court pointed out at the end of the judgment that the
act of the Government was not "shown to be vitiated by such arbitrariness as should call for
interference by the Court", recognising clearly that if the rejection of the tender of the 1st
respondent were arbitrary, the Court would have been justified in striking it down as invalid.
Now this rule, flowing as it does from Article 14, applies to every State action and since "State"
is defined in Article 12 to include not only the Government of India and the Government of each
of the States, but also "all local or other authorities within the territory of India or under the
control of the Government of India", it must apply to action of "other authorities" and they must
be held subject to the same constitutional limitation as the Government. But the question arises
what are the "other authorities" contemplated by Article 12 which fall within the definition of
'State' ? on this question considerable light is thrown by the decision of this Court in Rajasthan
Electricity Board v. Mohan Lal(1). That was a case in which this Court was called upon to
consider whether the Rajasthan Electricity Board was an 'authority' within the meaning of the
expression "other authorities" in Art. 12. Bhargava, J., delivering the judgment of the majority
pointed out that the expression "other authorities" in Art. 12 would include all constitutional and
statutory authorities on whom powers are conferred by law. The learned Judge also said that if
any body of persons has authority to issue directions the disobedience of which would be
punishable as a criminal offence, that would be an indication that that authority is 'State'. Shah,
J., who delivered a separate judgment, agreeing with the conclusion reached by the majority,
preferred to give a slightly different meaning to the expression "other authorities". He said that
authorities, constitutional or statutory, would fall within the expression "other authorities" only if
they are invested with the sovereign power of the State, namely, the power to make rules and
regulations which have the force of law. The ratio of this decision may thus be stated to be that a
constitutional or statutory authority would be within the meaning of the expression "other
authorities", if it has been invested with statutory power to issue binding directions to third
parties, the disobedience of which would entail penal consequence or it has the sovereign power
to make rules and regulations having the force of law. This test was followed by Ray, C.J., in
Sukhdev v. Bhagat Ram (supra). Mathew, J., however, in the same case, propounded a broader
test, namely, whether the statutory corporation or other body or authority, claimed to fall within
the definition of State', is as instrumentality or agency of Government: if it is, it would fall within
the meaning of the expression 'other authorities' and would be State'. Whilst accepting the test
laid down in Rajasthan Electricity Board v. Mohan Lal (supra), and followed by Ray, C. J., in
Sukhdev v. Bhagat Ram (supra), we would, for reasons already discussed, prefer to adopt the test
of Governmental instrumentality or agency as one more test and perhaps a more satisfactory one
for determining whether a statutory corporation, body or other authority falls within the
definition of 'State'. If a statutory corporation, body or other authority is an instrumentality or
agency of Government, it would be an 'authority' and therefore 'State' within the meaning of that
expression in Article 12. It is necessary at this stage to refer to a few decisions of this Court

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which seem to bear on this point and which require a little explanation. The first is the decision
in Praga Tools Corporation v. C. A. Imanuel.(1) This was a case in which some of the workmen
sought a writ of mandamus against Praga Tools Corporation which was a company with 56 per
cent of its share capital held by the Centra1 Government, 32 per cent by the Andhra Pradesh
Government and 12 per cent by private individuals. The Court held that a writ of mandamus did
not lie, because Praga Tools Corporation "being a non statutory body and one incorporated under
the Companies Act, there was neither a statutory nor a public duty imposed on it by a statute in
respect of which enforcement could be sought by means of mandamus, nor was there in its
workmen any corresponding legal right for enforcement of any such statutory or public duty."
(emphasis supplied). It is difficult to see how this decision can be of any help in deciding the
present issue before us. This was not a case where Praga Tools Corporation claimed to be an
instrumentality of government or an 'authority' within the meaning of Article 12. The only
question was whether a writ of mandamus could lie and it was held that since there was no duty
imposed on Praga Tool Corporation by statute, no writ of mandamus could issue against it.
The second decision to which we must refer is that in Heavy Engineering Mazdoor Union v.
State of Bihar(2). The question which arose in this case was whether a reference of an industrial
dispute between the Heavy Engineering Corporation Limited (hereinafter referred to as the
'Corporation') and the Union made by the State of Bihar under section 10 of the Industrial
Disputes Act, 1947 was valid. The argument of the Union was that the industry in question was
"carried on under the authority of the Central Government" and the reference could, therefore, be
made only by the Central Government. The Court held that the words "under the authority" mean
"pursuant to the authority, such as where an agent or a servant acts under of pursuant to the
authority of his principal or master" and on this view, the Court addressed itself to the question
whether the Corporation could be said to be carrying on business pursuant to the authority of the
Central Government. The answer to this question was obviously 'no' because the Corporation
was carrying on business in virtue of the authority derived from its memorandum and articles of
association and not by reason of any authority granted by the Central Government. The
Corporation, in carrying on business, was acting on its own behalf and not on behalf of the
Central Government and it was therefore not a servant or agent of the Central Government in the
sense that its actions would bind the Central Government. There (1) [1969] 3 S. C. R. 773, was
no question in this case whether the Corporation was an instrumentality of the Central
Government and therefore an 'authority within the meaning of Article 12. We may point out here
that when we speak of a Corporation being an instrumentality or agency of Government, we do
not mean to suggest that the Corporation should be an agent of the Government in the sense that
whatever it does should be binding on the Government. It is not the relationship of principal and
agent which is relevant and material but wether the Corporation is an instrumentality of the
Government in the sense that a part of the governing power of the State is located in the
Corporation and though the Corporation is acting on its own behalf and not on behalf of the
Government, its action is really in the nature of State action. This decision dealing with an
altogether different point has no bearing on the present issue.
We may then refer to the decision in S. L. Aggarwal v. General Manager, Hindustan Steel
Limited.(1) This decision has also no relevance to the point at issue before us, since the only
question in that case was wether all Assistant Surgeon in the employment of Hindustan Steel
Limited could be said to be holding a civil post under the Union or a State so as to be entitled to

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the protection of Article 311(2) of the Constitution. The Court held that Hindustan Steel Limited
was not a department of the Government nor were its employees holding posts under the State
within the meaning of Article 311(2). The decision was clearly right and indeed it could not be
otherwise since Hindustan Steel Limited, which was a distinct and independent legal entity, was
not a department of the Government and could not be regarded as State for the purpose of Article
311(2). It may be noted that the Court was not concerned with the question whether Hindustan
Steel Limited was an 'authority' within the meaning of Articlc 12.
Lastly, we must refer to the decision in Sarbhajit Tewari v. Union of India & ors.(2) where the
question was whether the Council of Scientific and Industrial Research was an 'authority' within
the meaning of Article 12. The Court no doubt took the view on the basis of facts relevant to the
constitution and functioning of the council that it was not an 'authority', but we do not find any
discussion in this case as to what are the features which must be present before a corporation can
be regarded as an 'authority' within the meaning of Article 12. This decision does not lay down
any principle or test for the purpose of determining when a corporation can be said to be an
'authority'. If at all any test can be gleaned from the decision, it is (1) [1970] 3 S. C. R. 363.
Whether the Corporation is 'really an agency of the Government". The Court seemed to hold on
The facts that the Council was not an agency of the Government and was, therefore, not an
'authority'.
We may examine, in the light of this discussion, whether the 1st respondent, namely, the
International Airport Authority of India,, can be said to be an authority falling within the
definition of 'State' in Article 12. It is necessary to refer to some of the provisions of the
International Airport Authority Act, 1971 (hereinafter referred to as the Act) for the purpose of
determining this question. Sub-section (1) of section 3 of the Act provides that the Central
Government shall constitute an authority to be called the International Airport Authority of India,
to whom we shall hereafter refer as the 1st respondent. Sub- section (2) states that the 1 st
respondent shall be a body corporate having perpetual succession and a common seal and sub-
section (3) enacts that the Ist respondent shall consist of a Chairman to be appointed by the
Central Government, the Director General of Civil Aviation ex-officio and not less than six and
not more than thirteen members to be appointed by the Central Government. The term of office
of every member of the 1st respondent is prescribed by sub-section (1) of section 5 to be 3 years,
but the Central Government is given under the Proviso power to terminate the appointment of
any member who is not a servant of the Government after giving him notice as also to terminate
at any time the appointment of any member who is a servant of the Government. The power to
remove a member in certain specified circumstances is also vested in the Central Government
under section 6. Section 32, sub-section (1) provides that as from the date appointed by the
Central Government all properties and other assets vested in the p Central Government for the
purposes of the airport and administered by the Director General of Civil Aviation immediately
before such date shall vest in the 1st respondent and all debts, obligations and liabilities incurred,
all contracts entered into and all matters and things engaged to be done by, with or for the
Central Government immediately before such date shall be deemed to have been incurred,
entered into and engaged to be done by, with or for the 1st respondent. This sub-section also says
that all non-recurring expenditure incurred by the Central Government for or in connection with
the purposes of the airport upto the appointed date and declared to be capital expenditure by the

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Central Government shall be treated as the capital provided by the Central Government to the 1st
respondent and all sums of money due to the Central Government in relation to the airport
immediately before the appointed date shall be deemed to be due to the 1st respondent. The 1st
respondent is also given the power to institute or continue all suits and other legal proceedings
instituted or which could have been instituted by or against the Central Government for any
matter in relation to the airport and every employee holding any office under the Central
Government immediately before the appointed date solely or mainly for or in connection with
the affairs of the airport shall be treated as on deputation with the 1st respondent. Sub-section (1)
of section 12 also enacts similar provisions with regard to the air navigation services and the
buildings used exclusively for such services immediately before the appointed date. The
functions of the 1st respondent are specified in section 16: sub-section (l) provides that, subject
to the rules, if any, made by the Central Government in this behalf, it shall be the function of the
1st respondent to manage the airports efficiently and sub-section (2) casts an obligation on the 1
st respondent to provide at the airports such services and facilities as are necessary or desirable
for the efficient operation of air transport services and certain specific functions to be performed
by the 1st respondent are particularised in sub-section (3). These. functions were, until the
appointed date, being carried out by the Central Government but now under Section 16 they are
transferred to the ] st respondent. Section 20 provides that after making provision for reserve
funds, bad and doubtful debts, depreciation in assets and an other matters which are usually
provided for by companies, the 1st respondent shall pay the balance of its annual net profits to
the Central Government. Section 21 requires the 1st respondent to submit for the approval of the
Central Government a statement of the programme of its activities during the forthcoming
financial year as well as its financial estimate in respect thereof at least three months before the
commencement of each financial year and section 24 provides that the accounts of the 1st
respondent shall be audited annually by the Comptroller and Auditor General and the accounts as
certified by the Comptroller and Auditor General or any other person appointed by him in this
behalf, together with the audit report thereon, shall be forwarded to the Central Government and
the Central Government shall cause the same to be laid before both Houses of Parliament. The
1st respondent is also required by section 25 to prepare and submit to the Central Government, as
soon as may be after the end of each financial year, a report giving an account of its activities
during the financial year and this report has to be laid before both Houses of Parliament by the
Central Government. The officers and employees of the 1st respondent are deemed by section 28
to be public servants and section 29 gives them immunity from suit, prosecution or other legal
proceeding for anything in good faith done or intended to he done in pursuance of the Act or any
rule or regulation made under it. Section 33 confers power on the Central Government to
temporarily divest the 1st respondent from the management of any airport and to direct the 1st
respondent to entrust such management to any other person. The Central Government is also
empowered by section 34 lo supersede the 1st respondent under certain specified circumstances.
Section 35 gives power to the Central Government to give directions in writing from time to time
on questions of policy and provides that the 1 st respondent shall in the discharge of its functions,
and duties, be bound by such directions. Section 36 confers rule making power on the Central
Government for carrying out the purposes of the Act and power to make regulations is conferred
on the 1st respondent under section 37. Section 39 provides that any regulation made by the 1st
respondent under any of the clauses (g) to (m) of sub-section (2) of section 37 may make it Penal
to contravene such regulation.

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lt will be seen from these provisions that there are certain features of the 1 st respondent which
are eloquent and throw considerable light on the true nature of the 1st respondent. In the first
place, the chairman and members of the 1st respondent are all persons nominated by the Central
Government and the Central Government has also the power to terminate their appointment as
also to remove them in certain specified circumstances. The Central Government is also vested
with the power to take away the management of any airport from the 1st respondent and to
entrust it to any other person or authority and for certain special reasons, the Central Government
can also supersede the Ist respondent. The Central Government has also power to give directions
in writing,, from time to time on questions of policy and these directions are declared binding on
the 1st respondent. The 1st respondent has no share capital but the capital needed by it for
carrying out its functions is provided wholly by the Central Government. The balance of the not
profit made by the Ist respondent after making provision for various charges, such as reserve
funds, had and doubtful debts depreciation in assets etc. does not remain with the 1st respondent
and is required to be paid over lo the Central Government. The 1st respondent is also required to
submit to the Central Government for its approval a statement of the programme of its activities
as also the financial estimate and it must follow as a necessary corollary that the 1 st respondent
can carry out only such activities and incur only such expenditure as is approved by the Central
Government. The audited accounts of the 1st respondent together with the audit report have to be
forwarded to the Central Government and they are required to be laid before both Houses of
Parliament. So far as the functions of the 1st respondent are concerned, the entire department of
the Central Government relating to the administration of airports and air nevigation services
together with its properties and assets, debts, obligations and liabilities, contracts, causes A of
action and pending litigation is transferred to the 1st respondent and the 1st respondent is
charged with carrying out the same functions which were, until the appointed date, being carried
out by the Central Government. The employees and officers on the 1st respondent are also
deemed to be public servants and the 1st respondent as well as its members, officers and
employees are given immunity for anything which is in good faith done or intended to be done in
pursuance of the Act or any rule or regulation made under it. The 1st respondent is also given
power to frame Regulations and to provide that contravention of certain specified Regulations
shall entail penal consequence. These provisions clearly show that every test discussed above is
satisfied in the case of the 1st respondent and they leave no doubt that the 1st respondent is an
instrumentality or agency of the Central Government and falls within the definition of 'State'
both on the 'narrow view taken by the majority in Sukhdev v. Bhagat Ram (supra) as also on the
broader view of Mathew, J., adopted by us.
It is, therefore, obvious that both having regard to the constitutional mandate of Article 14 as also
the judicially evolved rule of administrative law, the 1st respondent was not entitled to act
arbitrarily in accepting the tender of the 4th respondents, but was bound to conform to the
standard or norm laid down in paragraph 1 of the notice inviting tenders which required that only
a person running a registered IInd Class hotel or restaurant and having at least S years'
experience as such should be eligible to tender. It was not the contention of the appellant that this
standard or norm prescribed by the 1st respondent was discriminatory having no just or
reasonable relation to the object of inviting tenders namely, to award the contract to a sufficiently
experienced person who would be able to run efficiently a IInd class restaurant at the airport.
Admittedly the standard or norm was reasonable and non-discriminatory and once such a
standard or norm for running a IInd Class restaurant should be awarded was laid down, the 1st

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respondent was not entitled to depart from it and to award the contract to the 4th respondents
who did not satisfy the condition of eligibility prescribed by the standard or norm. If there was
no acceptable tender from a person who satisfied the condition of eligibility, the 1st respondent
could have rejected the tenders and invited fresh tenders on the basis of a less stringent standard
or norm, but it could not depart from the standard or norm prescribed by it and arbitrarily accept
the tender of the 4th respondents. When the 1st respondent entertained the tender of the 4th
respondents even though they did not have 5 years' experience of running a IInd Class restaurant
or hotel, denied equality of opportunity to others similarly situate in the matter of tendering for
the contract. There might have been many other persons, in fact the appellant himself claimed to
be one such person, who did not have 5 years' experience of running a IInd Class restaurant, but
who were otherwise competent to run such a restaurant and they might also have competed with
the 4th respondents for obtaining the contract, but they were precluded from doing so by the
condition of eligibility requiring five years' experience. The action of the 1st respondent in
accepting the tender of the 4th respondents, even though they did not satisfy the prescribed
condition of eligibility, was clearly discriminatory, since it excluded other person similarly
situate from tendering for the contract and it was plainly arbitrary and without reason. The
acceptance of the tender of the 4th respondents was, in the circumstances invalid as being
violative of the equality clause of the Constitution as also of the rule of administrative law
inhibiting arbitrary action. Now, on this view we should have ordinarily set aside the decision of
the,- 1st respondent accepting the tender of the 4th respondents and the contract resulting from
such acceptance but in view of the peculiar facts and circumstances of the present case, we do
not think it would be a sound exercise of discretion on our part to upset that decision and void
the contract. It does appear from the affidavits filed by the parties that the appellant has no real
interest in the result of the litigation, but has been put up by A. S. Irani for depriving the 4th
respondents of the benefit of the contract secured by them. We find that a number of proceedings
have been instituted for this purpose from time to time by A. S. Irani either personally or by
instigating others to take such proceedings. The first salvo in the battle against the 4th
respondents was fired by K. S. Irani, proprietor of Cafe Excelsior, who filed a suit challenging
the decision of the 1st respondent to accept the tender of the 4th respondents, but in this suit he
failed to obtain an interim injunction and his appeal was dismissed by the High Court on 19th
October, 1977. It is significant that when the tenders were opened in the office of the Airport
Director, Cafe Excelsior was represented by A. S. Irani, which shows that either Cafe Excelsior
was a nominee of A. S. Irani or in any event K. S. Irani, proprietor of Cafe Excelsior, was closely
connected with A. S. Irani. Moreover, it is interesting to note that though the tender of the 4th
respondents was accepted as far back as 19th April, 1977, K. S. Irani did not adopt any
proceedings immediately but filed the suit only after A. S. Irani was informed by the Airport
Director on 22nd August, 1977 that a final order has been received from the Ministry requiring
A. S. Irani to immediately close down his restaurant and snack bars. It is also a circumstance not
without significance that A. S. Irani did not immediately take any proceeding for challenging the
acceptance of the tender of the 4th respondents, but filed a suit in his own name only after the
appeal of K. S. Irani was dismissed by the High Court on 19th October, 1977. These
circumstances clearly indicate that the suit was filed by K. S. Irani at the instance of A. S. Irani
or in any event in concert with him and when the suit of K. S. Irani failed to achieve the desired
result, A. S. Irani stepped into the arena and filed his own suit. This suit was for a mandatory
injunction seeking removal of the two snack bars which had in the meantime' been put up by the
4th respondents pursuant to the acceptance of their tender by the 1st respondent. But in this

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proceeding also A. S. Irani failed to obtain an ad- interim injunction. It was only after the failure
to obtain interim relief in these two proceedings, one by K. S. Irani and the other by A. S. Irani,
that the appellant filed the present writ petition in the High Court of Bombay challenging the
decision of the 1st respondent to accept the tender of the 4th respondents. Now, it appears from
the record that the appellant was at the material time conducting a restaurant called Royal
Restaurant and Store which was owned in partnership by three persons, namely, J. K. Irani, K.
M. Irani and G. S. Irani. G. S. Irani is the brother of A. S. Irani and he was managing and looking
after the restaurant of A. S. Irani at the airport. It would, therefore, be a fair inference to make
that the appellant was well connected with A. S. Irani and from the manner in which proceedings
with a view to thwarting the attempt of the 4th respondents to obtain the benefit of their contract,
have been adopted one after the other in different names, it does appear that the appellant has
filed the writ petition at the instance of A. S. Irani with a view to helping him to obtain the
contract for the restaurant and the snack bars. It is difficult to understand why the appellant
should have waited until 8th November, 1977 to file the writ petition when the tender of the 4th
respondents was accepted as far hack as 19th April, 1977. The explanation given by the appellant
is that he was not aware of the acceptance of the tender of the 4th respondents but that is a rather
naive explanation which cannot be easily accepted It is not possible to believe that the appellant
who was so well connected with A. S. Irani and G. S. Irani did not know that A. S. Irani had
failed to obtain the contract for running the restaurant and the snack bars and that this contract
had been awarded to the 4th respondents as a result of which A. S. Irani was being pressed to
close down his restaurant and snack bars. We have grave doubts whether this writ petition was
commenced by the appellant bona fide with a view to protecting his own interest. Moreover, the
writ petition was filed by the appellant more than five months after the acceptance of the tender
of the 4th respondents and during this period, the 4th respondents incurred considerable
expenditure aggregating to about Rs. 1,25,000/- in making arrangements for putting up the
restaurant and the snack bars and in fact set up the snack bars and started running the same. It
would now be most inequitous to set aside the contracts of the 4th respondents at the instance of
the appellant. The position would have been different if the appellant had filed the writ petition
immediately after the acceptance of the tender of the 4th respondents but the appellant allowed a
period of over five months to elapse during which the 4th respondents altered their position. We
are, therefore, of the view that this is not a fit case in which we should interfere and grant relief
to the appellant in the exercise of our discretion under Article 136 read with Article 226 of the
Constitution. We accordingly dismiss the appeal and confirm the order of the High Court
rejecting the writ petition. But in the circumstances of the case there will be no order as to costs
throughout.
P.B.R Appeal dismissed.